FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) X OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 28, 1996 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) ______ OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File Number 1-7699 FLEETWOOD ENTERPRISES, INC. (Exact name of registrant as specified in its charter) Delaware 95-1948322 _______________________ ____________________________________________ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 3125 Myers Street, Riverside, California 92503-5527 ___________________________________________________________________________ (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (909) 351-3500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ Indicate the number of shares outstanding of each of the issuer's classes of Common stock as of the close of the period covered by this report. Class Outstanding at July 28, 1996 _________________________ _______________________________________ Common stock, $1 par value 38,056,659 shares Preferred share purchase rights -- CONDENSED FINANCIAL STATEMENTS The following unaudited interim condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Such financial statements have been reviewed by Arthur Andersen LLP in accordance with standards established by the American Institute of Certified Public Accountants. As indicated in their report included herein, Arthur Andersen LLP does not express an opinion on these statements. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information presented not misleading. In the Company's opinion, the statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the results of operations for the periods ending July 28, 1996 and July 30, 1995, and the balances as of July 28, 1996 and April 28, 1996. It is suggested that these condensed financial statements be read in conjunction with the financial statements and the notes thereto included in the Company's latest annual report on Form 10-K. REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the board of directors and shareholders of Fleetwood Enterprises, Inc.: We have made a review of the accompanying condensed consolidated balance sheet of FLEETWOOD ENTERPRISES, INC. (a Delaware Corporation) and subsidiaries as of July 28, 1996, and the related condensed consolidated statements of income for the thirteen week periods ended July 28, 1996 and July 30, 1995, the condensed consolidated statements of cash flows for the thirteen week periods ended July 28, 1996 and July 30, 1995, and the condensed consolidated statement of changes in shareholders' equity for the thirteen week period ended July 28, 1996. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to the financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of Fleetwood Enterprises, Inc. and subsidiaries as of April 28, 1996, and the related consolidated statements of income, cash flows and changes in shareholders' equity for the year then ended (not presented herein), and in our report dated June 25, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of April 28, 1996, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. ARTHUR ANDERSEN LLP Orange County, California August 27, 1996 FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Amounts in thousands except per share data) (UNAUDITED) Thirteen Fourteen Weeks Ended Weeks Ended July 28, 1996 July 30, 1995 Sales $751,245 $704,717 Cost of products sold 605,341 573,331 -------- -------- Gross profit 145,904 131,386 Operating expenses 101,226 99,212 -------- -------- Operating income 44,678 32,174 Other income (expense): Investment income 5,394 2,909 Interest expense (1,450) (894) Other (20) (112) -------- ------- 3,924 1,903 -------- ------- Income from continuing operations before income taxes and minority interest 48, 602 34,077 Provision for income taxes (19,270) (13,758) Minority interest in net loss of subsidiary -- 87 --------- -------- Income from continuing operations 29,332 20,406 Income from discontinued operations: Income from operations of finance subsidiary (less applicable income taxes of $511,000 in 1996 and $1,669,000 in 1995) 887 2,392 Gain on sale of finance subsidiary (net of income taxes of $19,607) 33,891 -- -------- -------- 34,778 2,392 -------- -------- Net income $64,110 $22,798 -------- -------- -------- -------- Net income per Common and equivalent share: Continuing operations $.64 $.44 Discontinued operations: Income from operations of finance subsidiary .02 .05 Gain on sale of finance subsidiary .74 -- ------- ------- Total $1.40 $.49 ------- ------- ------- ------- Dividends declared per share of Common stock outstanding $.16 $.15 ------- ------- ------- ------- Common and equivalent shares outstanding 45,916 46,518 ------- ------- ------- ------- See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (CONDENSED) (Amounts in thousands) ASSETS July 28, April 28, 1996 1996 (Unaudited) Cash $ 20,470 $ 15,792 Investments 191,549 272,138 Receivables 190,729 173,380 Inventories: Raw materials 105,220 94,302 Work in process and finished products 46,889 43,597 Net assets of discontinued operations -- 97,444 Property, plant and equipment 263,725 266,587 Deferred tax benefits 70,656 65,224 Cash value of Company-owned life insurance 30,917 30,953 Other assets 36,128 49,515 --------- ---------- $956,283 $1,108,932 -------- ---------- -------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Accounts payable $100,999 $104,850 Employee compensation and benefits 113,577 109,552 Federal and state taxes on income 28,118 (16,850) Insurance reserves 46,907 47,408 Long-term debt 80,000 80,000 Other liabilities 118,240 134,835 -------- -------- 487,841 459,795 -------- -------- Contingent liabilities Shareholders' equity: Preferred stock, $1 par value, authorized 10,000,000 shares, none outstanding -- -- Common stock, $1 par value, authorized 75,000,000 shares, outstanding 38,057,000 at July 28, 1996 and 45,640,000 at April 28, 1996 38,057 45,640 Capital surplus 37,688 42,758 Retained earnings 393,148 561,500 Foreign currency translation adjustment (814) (946) Investment securities valuation adjustment 363 185 --------- --------- 468,442 649,137 --------- --------- $956,283 $1,108,932 --------- --------- --------- --------- See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONDENSED) (Amounts in thousands) (UNAUDITED) 13 Weeks Ended 13 Weeks Ended July 28, 1996 July 30, 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $64,110 $22,798 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense 6,161 6,236 Amortization of intangibles and goodwill 180 431 Losses on sales of property, plant and equipment 20 112 Gain on sale of finance subsidiary (33,891) -- Changes in assets and liabilities: Increase in receivables (17,349) (4,793) (Increase) decrease in inventories (14,210) 45,241 Increase in deferred tax benefits (5,432) (6,308) (Increase) decrease in cash value of Company-owned life insurance 36 (11,122) Decrease in other assets 13,207 3,338 Decrease in accounts payable (3,851) (9,336) Increase in other liabilities 31,897 32,629 Foreign currency translation adjustment 132 (187) ------- -------- Net cash provided by operating activities 41,010 79,039 ------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of investment securities: Held-to-maturity (1,127,754) (1,071,303) Available-for-sale (1,268,533) (66,683) Proceeds from maturity of investment securities: Held-to-maturity 1,136,450 1,030,219 Available-for-sale 1,228,874 30,418 Proceeds from sale of available-for-sale investment securities 111,730 22,979 Purchases of property, plant and equipment, net (3,319) (8,675) Proceeds from sale of finance subsidiary 132,222 -- Change in net assets of discontinued operation (887) (2,392) --------- --------- Net cash provided by (used in) investing activities 208,783 (65,437) --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Dividends to shareholders (7,305) (6,909) Proceeds from exercise of stock options 2,731 -- Purchase of Common stock (240,541) -- --------- --------- Net cash used in financing activities (245,115) (6,909) --------- --------- Increase in cash 4,678 6,693 Cash at beginning of period 15,792 9,410 --------- -------- Cash at end of period $20,470 $16,103 --------- -------- --------- -------- Supplementary disclosures: Income taxes paid $ 4,176 $ 1,350 Interest paid 1,431 314 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (CONDENSED) (Amounts in thousands) (UNAUDITED) Invest- ment Foreign Secu- Currency rities Trans- Valu- Total Common Stock lation ation Share- Number of Capital Retained Adjust- Adjust- holders' Shares Amount Surplus Earnings ment ment Equity Balance April 28, 1996 45,640 $45,640 $42,758 $561,500 $(946) $185 $649,137 Add (deduct)- Net income -- -- -- 64,110 -- -- 64,110 Cash dividends declared on Common stock -- -- -- (7,305) -- -- (7,305) Stock options exercised 148 148 2,583 -- -- -- 2,731 Stock repurchased from tender offer (7,731) (7,731) (7,653) (225,157) -- -- (240,541) Foreign currency translation adjustment -- -- -- -- 132 -- 132 Investment securities valuation adjustment -- -- -- -- -- 178 178 Balance July 28, 1996 38,057 $38,057 $37,688 $393,148 $(814) $ 363 $468,442 See accompanying notes to financial statements. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS JULY 28, 1996 1) Reference to Annual Report Reference is made to the Notes to Consolidated Financial Statements included in the Company's Form 10-K annual report for the year ended April 28, 1996. 2) Industry Segment Information Information with respect to industry segments for the periods ending July 28, 1996 and July 30, 1995 is shown below: 13 Weeks Ended 13 Weeks Ended July 28, 1996 July 30, 1995 OPERATING REVENUES: Manufactured housing $377,145 $361,537 Recreational vehicles 357,854 332,313 Supply operations 16,246 10,867 -------- -------- $751,245 $704,717 -------- -------- -------- -------- OPERATING INCOME: Manufactured housing $ 29,893 $ 27,947 Recreational vehicles 19,837 6,081 Supply operations 1,464 56 Corporate and other* (6,516) (1,910) --------- -------- $ 44,678 $ 32,174 --------- --------- --------- --------- * Including adjustments and eliminations. FLEETWOOD ENTERPRISES, INC. AND SUBSIDIARIES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Amounts in thousands) The following is an analysis of changes in key items included in the consolidated statements of income for the 13-week period ended July 28, 1996 compared to the 13-week period ended July 30, 1995. The amounts shown below apply only to continuing operations. Thirteen Weeks Ended July 28, 1996 Increase % (Decrease) Change Sales $46,528 6.6% Cost of products sold 32,010 5.6 -------- ---- Gross profit 14,518 11.1 Selling expenses (5,047) (10.5) General and administrative expenses 7,061 13.8 -------- ----- Operating expenses 2,014 2.0 --------- ----- Operating income 12,504 38.9 Other income (expense) 2,021 106.2 Income before taxes 14,525 42.6 Provision for income taxes 5,512 40.1 Net income $ 8,926 43.7% -------- ----- -------- ----- Current Quarter Compared to Same Quarter Last Year Net income for the first quarter of fiscal 1997 jumped to $64,110,000 or $1.40 per share compared to $22,798,000 or 49 cents per share in the prior year. Included in current year earnings is an after-tax gain of $33,891,000 or 74 cents per share on the sale of Fleetwood Credit Corp., the Company's RV finance subsidiary. First quarter earnings also include $887,000 or 2 cents per share for one month of operations from the discontinued finance operation. Income from continuing operations rose 44 percent to a record $29,332,000 or 64 cents per share, up from $20,406,000 and 44 cents per share a year ago. Sales gains and improved operating margins for both manufactured housing and recreational vehicles led to the higher operating earnings. Most of the improvement, however, came from the RV group primarily as a result of sharply higher motor home sales and profits. With all business segments producing higher sales, consolidated revenues increased 7 percent to $751.2 million compared to $704.7 million last year. Prior year revenues have been restated to remove $13.8 million of finance revenues because of the sale of Fleetwood Credit Corp. and its treatment as a discontinued operation. Manufactured housing sales reached a new first quarter high of $377.1 million, 4 percent ahead of last year's $361.5 million. The company sold 17,453 homes in the quarter compared to 17,350 in last year's similar period. A higher percentage of sales were represented by multi-section homes which led to a 4 percent rise in the volume of floors shipped. Despite the increased sales volume, housing group sales as a percentage of total Company revenues fell from 51 percent last year to 50 percent in this year's first quarter. Recreational vehicle revenues were up 8 percent to $357.9 million on the strength of sharply higher motor home sales. The motor home division generated a 33 percent sales increase to $223.9 million on a 20 percent gain in shipments to 4,174 units. Travel trailer revenues were off 5 percent to $116.9 million as unit volume slipped 8 percent to 8,837 units. The folding trailer division experienced a 22 percent sales decline to $17.1 million with unit shipments sliding 34 percent to 3,524. Last year's first quarter included sales of $18.3 million from the European RV operation which was sold in May 1996. Recreational vehicle sales were 48 percent of total Company revenues, up from 47 percent last year. Manufacturing gross profit improved as a percentage of sales from 18.6 percent to 19.4 percent, led by improved margins in the RV group. The higher RV margins primarily reflected increased labor efficiencies and lower manufacturing overhead costs. Housing group margins as a percentage of sales were virtually unchanged from the prior year. Operating expenses of $101.2 million were 2 percent higher than last year's similar period, but lower as a percentage of sales, falling from 14.1 percent to 13.5 percent. Selling expenses dropped 10 percent to $43.1 million as reductions in RV marketing and sales promotion expenses more than offset higher product warranty costs. As a percentage of sales, selling expenses declined from 6.8 percent to 5.7 percent. General and administrative expenses rose 14 percent to $58.1 million and increased as a percentage of sales from 7.3 percent to 7.7 percent. The increase was primarily due to higher management incentive compensation stemming from improved profits. Non-operating income doubled to $3.9 million compared to last year's $1.9 million mainly as a result of higher investment income. Income from investments of $5.4 million was 85 percent ahead of last year largely due to a temporary bulge in cash balances available for investment. The large increase in invested funds mainly resulted from the sale of Fleetwood Credit Corp. and the assumption of $80 million in long-term debt from the finance subsidiary. In late July, the Company completed a tender offer for 7.7 million shares of its outstanding Common stock which used up all of the proceeds from the finance company transactions. The Company expects investment income to return to more normal levels in future quarters. The effective income tax rate declined to 39.6 percent from 40.4 percent a year ago largely due to the elimination of the German RV operation which last year was generating operating losses with no tax benefits. Liquidity and Capital Resources The Company generally relies upon internally generated cash flows to satisfy working capital needs and to fund capital expenditures. Cash generated from operations in the first quarter was $41.0 million compared to $79.0 million in the prior year. Increased investments in receivables and inventories in the current year led to the decline in cash flow relative to the prior year. Cash and investments fell $75.9 million to $212.0 million primarily due to the purchase of the Company's Common stock as explained below. Cash received during the quarter included the proceeds from the sale of Fleetwood Credit Corp., which totaled $132.2 million, net of income taxes. This, combined with proceeds from the sale of investment securities, resulted in net cash of $208.8 million provided by investing activities. During the quarter, the Company completed a Dutch Auction tender offer resulting in the purchase of 7.7 million shares or approximately 17 percent of its outstanding Common stock at a cost of $240.5 million. The Company may from time to time make further share repurchases. There remains outstanding a previous authorization by the Board of Directors to purchase up to 1.7 million shares of the Company's Common stock. Other cash outflows during the quarter included $3.3 million for capital expenditures and $7.3 million for quarterly dividends paid to shareholders. On August 14, 1996, shortly after quarter end, the Company made a scheduled debt repayment of $25 million which reduced long-term debt outstanding to $55 million. PART II OTHER INFORMATION There are no other items to be reported or exhibits to be filed. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FLEETWOOD ENTERPRISES, INC. _______________________________ Paul M. Bingham Financial Vice President and Chief Financial Officer September 5, 1996 FLEETWOOD ENTERPRISES, INC. CONSOLIDATED FINANCIAL INFORMATION FINANCIAL DATA SCHEDULE [SROS] NYSE [SROS] PSE